Alvarado company purchased a new machine for 400000 It is es

Alvarado company purchased a new machine for $400,000. It is estimated that the machine will have a $40,000 salvage value at the end of its 5-year useful service life. The double-declining-balance method of depreciation will be used. Prepare a deprecation schedule which shows the annual depreciation expense on the machine for its 5-years life. Adjusted to $11,840 because ending book value should not be less than expected salvage value.

Solution

Straight line rate = 1/useful life = 1/5 = 20%

double declining rate = 2 x 20% = 40%

Last year depreciation = book value at the end of the 4th year - salvage value = 51840 - 40000 = $11840

			End of year
Year	Book Value beginning of year	Annual depreciation expense	Accumulated depreciation	End of year book Value
1	4,00,000.00	1,60,000.00	1,60,000.00	2,40,000.00
2	2,40,000.00	96,000.00	2,56,000.00	1,44,000.00
3	1,44,000.00	57,600.00	3,13,600.00	86,400.00
4	86,400.00	34,560.00	3,48,160.00	51,840.00
5	51,840.00	11,840.00	3,60,000.00	40,000.00